Medical Economics -- April 2001
By Walt Borges
The leaders of the Austin physicians' group Preferred
Independent Physicians of America (PIPA) aren't sure how the
group's contract negotiations with PacifiCare of Texas went off
track last year, but they are disturbed by the timing of the
collapse of a deal they thought was in the bag.
It's not just that PIPA's negotiations with PacifiCare ended up
in a frustrating "he said, she said" factual dispute over who
agreed to what. PIPA President Al Lindsey, MD, and Executive
Director Laura Kabay say they think the 450-physician group, which
includes 70 primary care physicians, was dangled as bait to entice
major Austin employers and their employees to sign up for
PacifiCare health plans.
They say PIPA, working under a temporary letter of agreement
while a permanent contract was negotiated, willingly cooperated
with PacifiCare to recruit employers, including the giant Texas
Employee Retirement System (ERS), which provides health care
benefits for state workers and their families. Dr. Lindsey and Ms.
Kabay also say they made unsuccessful overtures to St. David's
Medical Center on PacifiCare's behalf to get the Austin hospital to
sign a contract with the company.
"The marketing that was done by PacifiCare in Austin was much
less than that done by their competitors in the market. That's
because our doctors were doing their marketing for free," Ms. Kabay
"What have we learned? No. 1, don't sign interim agreements, and
No. 2, insurance companies will say anything to get us to help them
sell their products," she said.
What chafes the PIPA officials is that the negotiations
collapsed as the summer enrollment period for some major health
plans drew to an end, raising suspicions that PIPA's usefulness to
PacifiCare terminated with the employee sign-up period. PacifiCare
rejected what PIPA says was an agreed-upon capitation rate just
eight days before the end of the enrollment period. PIPA responded
by giving notice that the group was terminating its interim letter
What irritates PacifiCare managers, who dispute PIPA's version
of the events, is PIPA's refusal to compromise during 16 months of
negotiations and its 11th-hour demand for what they call
unreasonable changes to the contract's financial terms.
"Believe me, this was not a fun thing to do," said Phillip W.
Solomon, executive director of PacifiCare of Texas. "It took us a
whole lot of heartache and a lot of soul-searching before we just
said, 'You know, guys, we have some major problems here.' A good
question that may be asked is [whether] this is a matter of a
marketing ploy or a matter of some people over there not
negotiating contracts in good faith."
PIPA's perception that it was used as a marketing tool might be
easy to dismiss, were it not for the fact that the experience
resonates with familiarity among other doctors and physician group
"This is such a common problem that it's unreal," said one
Central Texas practice administrator for a small-city physician
The administrator, who asked that he and his group not be
identified, says health plans commonly represent to employers that
the most popular physicians and groups will be serving their
employees even when the groups and physicians have not firmly
committed to contract with the plan.
"The plans do it to show that there are a lot of physicians in
their network," the administrator said. "This is important for the
plans because by listing our doctors, it shows that there is local
access to the insurer's health care network."
Rich Johnson, director of Texas Medical Association's Division
of Medical Economics, says TMA is monitoring situations such as
PIPA's and has at times conducted dispute resolution meetings to
help physician groups resolve differences with insurers.
Others also concerned
Physicians aren't the only ones who are uneasy when looking at
the listings in printed health plan directories and on health plan
On Feb. 7, Richard D. Minker, owner of a commercial real estate
firm in Fort Worth, wrote the president of Blue Cross Blue Shield
of Texas (BCBS Texas) to complain about misleading physician
listings. In the letter to Rogers Coleman, MD, Mr. Minker explained
that he and his wife joined BCBS Texas' PPO Select Advantage in
March 2000 because of the benefit coverage and the physician
network, which included their primary care physicians and Ms.
In February 2001, none of the Minkers' doctors remained in the
BCBS physician network, yet all were listed in its Northeast Texas
Physician Referral Directory.
"According to our physicians, Blue Cross provides either slow
pay, no pay, or under pay for services provided," Mr. Minker wrote.
"Switching health care providers is not as simple as switching out
a set of tires on a car. I feel your publication of your physician
referral system is 'fraud in the inducement.' Changing health care
providers is costly from both a time and effort standpoint and not
without risks, with ever-increasing underwriting standards."
Mr. Minker said he was asking Texas Insurance Commissioner José
Montemayor to investigate and correct BCBS Texas' practices
relating to the physician listings.
In a Feb. 15 letter in response to Mr. Minker, Darren Rodgers,
BCBS Texas vice president and chief operating officer of geographic
business units, explained that the company is required to publish
its network directories once a year and that the most up-to-date
information on network physicians can be found in the insurer's
online physician directory at
BCBS Texas said the three physicians mentioned by Mr. Minker
terminated their contracts in the summer and fall of 2000 and were
not listed in the October 2000 directory. Moreover, BCBS Texas says
the incident Mr. Minker refers to does represent the state of the
insurer's physician network, which actually grew last year by
nearly 3,000 physicians.
Mr. Minker responded to the BCBS letter on Feb. 20. In it, he
said what the company didn't say in its letter to him "is more
indicative of the problem than what it does say. While you attempt
to address my accusation of 'fraud in the inducement," you don't
even begin to attempt to address the issue of why physicians are
pulling out of the Blue Cross Blue Shield network."
He asked the company to send him a list of physicians who have
dropped out of its network and a list of those who have joined
since the 1999 directory was published. "That would help me
understand if my feelings about the problems that may exist between
Blue Cross Blue Shield and its physician network are real or
He also suggested that BCBS print a monthly update of additions
or deletions to its directory because not all of its subscribers
use a computer and have Internet access.
In a follow-up discussion with
, Mr. Minker said he has since learned that the anesthesiology
group that he and his family have used in the past is no longer
accepting BCBS patients even though it is listed in the October
2000 directory. Mr. Minker, however, did not know at what point the
anesthesiology group had dropped out of the BCBC provider
"TDI has seen few complaints that HMOs or insurers have
intentionally listed physicians with whom they don't have contracts
in their provider directories," said Commissioner Montemayor. "Our
rules require HMOs to update their directories quarterly. We would
investigate thoroughly if complaints led us to suspect that an HMO
or insurer was deliberately deceiving the public by padding its
list of network physicians. Physicians and others who believe this
is happening can report it to our HMO Division or, in the case of
insurance companies, to our Consumer Protection Division."
TDI has acted on at least one incident that it found violated
state insurance law. In October 1994, then-Insurance Commissioner
J. Robert Hunter ordered Sanus Health Plan Inc. of Houston to pay
the state $100,000 and obligated the insurer to take corrective
action for providing state employees with advertising that listed
nonparticipating doctors as part of the Sanus physician network.
Sanus consented to the order without admitting a violation of the
The insurer was required to place ads in an Austin newspaper
before the closing of the state employee enrollment period
informing state workers that two physician groups Sanus had
mistakenly claimed were in its network were in fact not available
to them if they chose a Sanus plan. State employees who selected
Sanus plans could petition ERS to allow a change of health plans,
designate another primary care physician from the Sanus network, or
continue with the original out-of-network physician choice, with
the physician paid the usual and customary charges instead of the
discounted in-network rates.
A difference of opinion
Leslie Kjellstrand, director for communications for ERS, says
the state agency has not complained to health insurers about
outdated physician lists because it understands the difficulties of
maintaining such current lists.
"We are very clear with participants that the providers contract
with the plans and that provider lists can change frequently," Ms.
Kjellstrand said. "We urge [state employees] to look on the
Internet to check whether doctors participate in a plan. It's a
fact of life that providers there at one point in time won't be
there a year or a few months later."
James Sarver, insurance program design manager for The
University of Texas (UT) at Austin, believes that physician
listings -- inflated with the names of doctors who have terminated
contracts or who are in negotiations -- can be used to bolster a
plan's attractiveness to employers.
"Does it happen frequently? No. Does it happen? Yes," said Mr.
Sarver, who previously held a similar position with ERS.
"It's disconcerting for an employee to sign up because a
particular doctor is listed, then discover that the physician is no
longer part of the plan," he said. At UT, which contracts for
administrative or network services from the health plans,
complaints about physician listings are referred directly to the
individual plans, he says.
Mr. Sarver says UT is trying to curb employee confusion by
urging the plans it deals with to notify members in writing when a
physician group or network terminates its contract.
Deception in three acts?
Norman H. Chenven, MD, executive vice president of the Austin
Regional Clinic, agrees with Mr. Sarver that physician listings can
be misleading, whether by inadvertence, incompetence, or
Dr. Chenven says the misleading nature of physician networks
associated and contracted with health plans arises from three
In the first, a new health plan will come to a city or town
where it has no established network of contracted physicians.
"There's a double sell going on," Dr. Chenven explained. "New
plans are coming in and they are simultaneously selling the doctors
on the plan and the employers and members on the plan."
That situation creates an opening -- or maybe a necessity -- for
health plans to promise the participation of doctors who haven't
yet signed contracts.
"I'm amazed at how the health plans represent to employers that
they are in the final stages of negotiations," Dr. Chenven said.
"They will say, 'We are 100 percent sure we have [this group] on
board.' Sometimes it's an honest representation, but it generally
happens in a setting of plausible deniability."
The second scenario involves a plan's failure to maintain and
update directories of physicians and other health care
professionals. Dr. Chenven chalks that up to incompetence.
Printed directories will always be a problem, he points out.
"With printed directories, there is a big lead time for the
occasional printings of the directory, and there is at least three
months lead time because of the notice that physicians must give
before withdrawing from the plan," he said.
Online physician directories are another matter. Insurers should
update the listings promptly each month to reflect new additions
and withdrawals, Dr. Chenven says. A week or two is too much lag
time for listing updates, he says, particularly when physicians or
groups have given notice of a contract termination months or weeks
"If I tell a plan I'm leaving in six months, then once notice
has been given, there ought to be a termination date with the
online directory listing," he said.
Dr. Chenven's third scenario occurs when a physician group is
negotiating with a plan to renew its contract and an enrollment
period is approaching.
"Health plans sometimes leave the [group's physicians] in its
list, and there's dual maliciousness in that," Dr. Chenven said.
"Not only is [the plan] not informing the members that some
physicians will not be part of the plan, but [the plan] is hoping
for a large patient sign-up that will pressure physicians to
re-sign with the plan."
Dr. Chenven points out that large employers who notice the
misleading listings have more options than do employers with a
small workforce. "Some of the larger employers can effectively
register their displeasure to the plans," Dr. Chenven noted, "but
all that smaller employers can do is yell at the plan
Signing up the stragglers
Mr. Solomon of PacifiCare says that manipulating physician lists
and negotiations makes no sense for health plans.
"You have to turn around and tell people that these physicians
are not part of the plan," he said. "You have extreme member
dissatisfaction and you get a black eye from having to notify your
membership. You lose credibility in the marketplace. And if we have
a large provider disruption, we are subject to review by TDI."
Mr. Solomon says the PIPA situation was extremely frustrating
for both sides, but he points to PacifiCare's success in signing
PIPA physicians to individual contracts as evidence that PIPA acted
"If there is extreme dissatisfaction with [PacifiCare], and that
organization [PIPA] does indeed believe that, then why in the world
is an extremely high percentage of [its] physicians willing to
continue with us in the direct contracting mode?" Mr. Solomon
Paul Handel, MD, chair of the TMA Council on Socioeconomics,
offers one explanation: "In this case, local physicians knew that
PacifiCare would have a substantial presence in the marketplace,
especially if large employers chose that plan's products. If the
physicians are to continue serving their patients, they have little
"Did PacifiCare use local physicians for marketing purposes
before backing away from the negotiating table to pick them off
individually? It would certainly appear so," Dr. Handel said.
Mr. Solomon estimates that 90 percent of the PIPA physicians
signed individual contracts with PacifiCare. "We had to scramble to
get the doctors signed up," he said. "We sent out a lot of
agreements, and we're still getting them back."
Dr. Lindsey, the PIPA president, suggests another reason. He
says he signed an individual contract with PacifiCare, but not
because he likes PacifiCare or the contract terms.
"I personally told my patients to join the plan, and a
testimonial from a physician is the No. 1 reason a patient switches
plans," Dr. Lindsey said. "So I'm still a PacifiCare provider
because I didn't want to abandon my patients."